Scotland’s vast deficit gives nationalists another dose of reality

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Happy GERS day everyone! For the uninitiated, the publication of the Government Expenditure and Revenue Scotland figures has become one of Scotland’s most-cherished annual political bunfights. It is a kind of Caledonian Festivus, during which certain rites must be observed. Some people enjoy the Festivus Miracles, others relish the Festivus Feats of Strength and magical thinking but everyone agrees that the true meaning of Festivus – and GERS – is only truly made apparent during the traditional and joyous Airing of Grievances.

Today, happily, will be no exception. the latest GERS figures show some improvement in Scotland’s financial position. The deficit run by Scotland last year only amounted to £13.3 billion, slightly better than the £14.5 billion run the year before. Even so, whereas the UK’s budget deficit amounted to 2.4 per cent of GDP, Scotland’s deficit remains approximately 8.3 per cent of its GDP. Better than last year but still, you know, not very good.

Despite this, we can look forward to the spectacle of politicians who once told us GERS confirmed that an independent Scotland would be wealthier than the UK it left behind reversing their ferrets to declare that, actually, GERS is just an incomplete and inadequate snapshot of Scotland’s true fiscal position. Statistics that were once the gold-standard are no longer even copper-bottomed. You cannot trust the numbers that your own government produces. Which, when you think about it, is quite a thing for SNP politicians and their supporters to argue.

On the other hand, as is again traditional, in some quarters there will be an almost unseemly relish to the manner in which some Unionist politicians and their supporters point to GERS figures showing another alarming fiscal deficit and use these numbers to declare Scottish independence the greatest folly in the long and forlorn history of great follies. See, they will say, we told you so, you fools.

Admittedly, the numbers are on the Union’s side but, as has been observed before, Unionism needs more than just numbers. Because if your argument about the Union is cast in purely statistical terms you concede a significant chunk of the independence case and, moreover, leave yourself vulnerable should those numbers ever change. Unionism must appeal to the heart as well as to the head.

But there is no doubt, whatever SNP politicians say today, that GERS has become a problem for the nationalist movement. Everyone accepts that the figures are not complete, that GERS cannot account for every aspect or element of Scottish economic activity and that, this being so, it must rely in places on best-guess estimates (albeit estimates that are revised each year, increasing their likely accuracy). But everyone sensible also accepts that GERS is the best we can do at present and thereby offers the best indication of where a putatively-independent Scotland would start from.

And it would start from a sub-optimal position. Modest deficits can be run each year; deficits of 8,9 or 10 per cent of GDP cannot. North Sea Oil, which was once going to lubricate the Scottish economy, has been redefined as “just a bonus” which is an interesting way of describing an industry that, at its peak, amounted to something close to 15 per cent of Scottish GDP. As bonuses go, that’s a hefty cherry. The idea of a Scottish oil fund was quietly jettisoned in 2014; it has not been heard of since and will not be ever again.

But then the case for independence – or, rather, the purely economic case for independence – was always made on the basis that you could have your cake and, having eaten it, discover you still had more cake to eat. It was made on the assumption – the bold assumption – that Scotland could keep everything it liked about the UK without losing anything significant in return. The laws of trade-offs would mysteriously cease to apply. And we would immediately be richer.

Because, miraculously, complicating our trading arrangements with our closest and largest market, one in which 63 per cent of Scottish goods are sold, would impose no costs at all. That was before Brexit, of course, but the added friction caused even within a single UK and European market is as nothing compared to the friction imposed by a putative independent Scotland inside the EU trading with a rump UK outside it.

Even so, certain things still need to be said every year. First, reality cannot be wished away and the reality is that an independent Scottish state’s early years would be lean and hard. It would, as Andrew Wilson, the man tasked with rebuilding the economic prospectus for independence, accepts take the best part of a decade to bring the deficit down to manageable levels. Scotland is not too poor – or too wee or even, you know, too stupid – to be independent but it would begin its life materially poorer than it is at present.

In the long-run we’d be fine though of course in the long-run we’ll all be dead too. GERS does not – and here nationalist observers have a point – tell us anything about where we will go too but it does make clear where we’d be starting from. And we would not be starting from anywhere ideal. That, you may say, shows a certain failure of Union but even if you accept that you have to concede that the early years would require significant tax increases and equally significant spending cuts. The days of claiming, as Alex Salmond was wont to do, that an independent Scotland could spend more, borrow less, and tax the same are long gone. (But then this was always a fantasy of Mr Salmond’s imagining, albeit one that was shared by too many of his
compatriots.)

Reality bites and fiscal reality is especially painful. The consolation for nationalists, if they seek to dwell upon it, is that Scotland is not going to be an independent state next year. If – and it remains an if not a when – Scotland chooses independence it will likely only do so if and when the economic prospectus for independence is rosier – and demonstrably so – than it is at present.

And that, again, should serve as a warning for Unionists. The numbers, indeed the facts, lie on the side of Union now but what will happen if one day the numbers and the facts of life cease to offer you comfort and, instead, tell a different story and point in a different direction? Just as nationalists need to face reality today, so the Union might one day need a fresh song to sing too.